Swot analysis en

Small and medium-sized enterprises

Diana Hristozova, senior researcher, Center for Economic Development

International experience in the development of each particular national economy proves in practice the priority importance of the sector of small and medium-sized enterprises (SMEs) for the emergence and existence of competitive market economy and the achievement of optimal diversification in terms of the size of enterprises. SMEs are a source of new employment opportunities, they stimulate the development of entrepreneurial skills, contribute to strengthening of competition and reduction in regional discrepancies related to economic efficiency. Since economic development depends primarily on private initiative of individual persons or groups of various motivations, the state shall only establish, impose and provide favourable framework conditions for its free development.

SWOT of the SME sector

To create favourable conditions for the development of the sector is among the priorities in the policy of the Government⁵. The importance of the sector for the successful restructuring of the economy accounts for the increase of public attention toward the problems and prospects for development of the entrepreneurship, a result of which are the research and analysis of the SME sector that have been carried out recently. On the basis of the findings and the recommendations some of its most important advantages can be pointed out. The SMEs are:

• 
  generator of higher competitiveness on the market;
  
• 
  source of new employment opportunities;
  
• 
  more flexible in crisis periods;
  
• 
  more flexible in terms of internal organisational structure and are able to adopt more rapidly and readily innovations and new technologies;
  
• 
  a favourable environment for development of entrepreneurial skills and business culture;
  
• 
  closer to the ultimate consumers and can respond to their demands more rapidly and efficiently.
  
• 
  At the same time, some of the SME weaknesses shall also be pointed out, namely:
  
• 
  due to difficult access to financing, a great part of the SMEs are engaged with activities which are characterised by higher labour intensity than invested capital;
  
• 
  a substantial part of the entrepreneurs do not have sufficient marketing, financial and accounting and legal knowledge, which hinders their business and reduces the efficiency of the enterprises;
  
• 
  low access level and disregard of the real needs for information and consultation;
  
• 
  underestimating of the quality requirements for the manufactured goods and services, especially in export oriented industries;
  
• 
  most entrepreneurs are not well acquainted with the current effective international agreements and requirements and their influence on the liberalisation of the market.
  

The importance of SME for the national economy could also be outlined in terms of the opportunities for further strengthening and development of the sector and its impact on the economy toward:

• 
  reduction of the unemployment rate;
  
• 
  increase of economic competition;
  
• 
  development of new high-technology industries;
  
• 
  reduction of regional economic discrepancies;
  
• 
  possibility to loop the production cycle and achieve higher efficiency by setting up clusters (related production) on regional or branch principle;
  
• 
  enhancement of the economic growth rate at regional and national level;
  
• 
  increase of the welfare of the nation.
  

The potential threats for the successful development of the SME sector are mainly in the following directions:

• 
  impossibility to extend an individual enterprise by modernisation, expansion of activities and employment of new workers because of the adverse external (macroeconomic) environment - high taxation and insurance liability, difficult access to financing, administrative barriers etc. - and also due to the inability of the entrepreneurs to deal with its challenges;
  
• 
  insufficient managerial skills of the entrepreneurs, inability to react adequately to liberalised markets and reshaping the manufactured produce and provided services in compliance with the European standard requirements.
  

Conclusions and recommendations

The improved conditions for development of the SME sector in Bulgaria generally, and of the technological SMEs in particular, shall be based on the system of purposeful activities for the implementation of the National strategy to encourage the development of SMEs and the Working Program for its implementation, the National Plan for Regional Development in the period 2001 -2006, the National Plan for Economic Development which is under preparation, as well as the revised Program “Bulgaria 2001”. More precisely, the major objective of the National Strategy is to create a favourable institutional, regulatory, administrative, financial and competitive environment, encouraging the SMEs in Bulgaria. With reference to technology sector, the short-term initiatives in the working program provide for the establishment of business centres, technological parks, incubators, innovation centres, while the medium term initiatives (by 2001) include incentives for co-operation of SMEs with scientific and R&D units, technology and innovation centres and universities to solve concrete technical and technological problems, transfer of technologies and joint participation in scientific and research programs financed by the EU.

The importance of the SME sector for the economy, as well as its strengths and weaknesses shall be considered when it comes to defining the concrete activities. They shall be aimed at solving some more general problems at national level, but also specific problems at branch and regional levels. To this end, however, it is necessary to define the priority sectors in the industrial policy of the country, considering their competitive potential, on which the efforts for the improvement of development conditions will be focused. Those efforts do not imply state subsidies or any special preferences - tax, credit or other - but purposeful actions to support their development. Allow me to short examples in this respect.

At national level the selected priorities shall include high-technology and innovation activities businesses, and part of the most important argumentation is that: they contribute considerably to the modernisation of production and enhancement of the produce competitiveness; the country has traditions in their development, which should be kept and expanded; we have highly qualified specialists whose labour is comparatively cheap and who shall be motivated to work in the country and not abroad; our country is comparatively poor in natural resources and we shall focus our efforts to develop industries with relatively high labour share, which in addition shall be of high quality since one of the future development objectives is to increase the standard of living, as on the one hand the population is not numerous and it is ageing, on the other energy consuming and inefficient industries become less and less competitive due to the ever increasing prices of energy resources. Some concrete measures which can be undertaken are for example: priority building of technology parks and “one stop shops” (which also must have a very concrete purpose, as the specific peculiarities of the different in essence businesses make, at this stage, too ambitious the task to collect in one absolutely all administrative procedures), since the purposeful support of high-technology and innovative industries and services would have a comparatively higher medium term macroeconomic effect.

At regional level, if, for example, a priority problem that needs to be solved is the high unemployment rate, considering in detail the characteristic features of the regional economy and the above mentioned data about the SME sector, reserves for development of SMEs and increasing employment in them may be sought in view of the relatively low average employment rate in one enterprise. Attention shall be focused on looking for development opportunities in the branch of “Services”, where the rate of employment is substantially higher than the average for the country - one of the indicators of its relatively high competitiveness. Should we enter in greater detail, that could be design and program provision and the related services, where average employment rate, average turnover per employee and operational profitability are the highest. Within the “Industry” branch, the relatively most competitive production is the production of medical equipment, precision apparatuses and instruments, as the SMEs having such business account for the highest relative share in the sector and its turnover, a relatively high share in employment rate, average turnover per employee and achieved operational profitability.

Naturally, the given examples are purely theoretical due to lack of sufficient information and the relatively old and insufficiently precise data that have been used for the purposes of the analysis herein. Should there be available enough precise, full and up-to-date data, a similar approach could be used to solve concrete practical problems.